RIL opposes competitive bidding for natural gas

NEW DELHI: It’s now Mukesh Ambani’s turn to object to the mandatory competitive bidding process to sell natural gas. RIL has made a presentation to the government that natural gas should be sold on mutually agreed prices between the seller and the buyer. The petroleum ministry had earlier rejected RIL’s gas contract with Anil Ambani-controlled Reliance Natural Resources (RNRL) as the gas price was not based on competitive bids and was not an arm’s-length contract.

The Mukesh Ambani-controlled group has said pricing of gas through bidding should not be mandatory and should be based on mutual negotiations, given the Indian gas market conditions. Advocating price discovery through mutual discussions, RIL said the mechanism is followed in most of the gas or LNG contracts the world over, thereby meeting. expectations of buyers and sellers and providing flexibility to suit customer-specific requirements. The petroleum ministry had held that gas producers like the consortium of RIL/BG and ONGC, which was producing gas at the Panna Mukta and Tapti fields, had managed to sell gas at a better price, thanks to the price discovery method followed.

“Sale through bidding process may not be the ideal way of price discovery and, therefore, should not be mandatory,” RIL said in a presentation to the committee entrusted with formulating transparent guidelines for approving gas price formula/basis for giving government approval under the production sharing contract. It has, instead, suggested that pricing policy should “envisage price discovery through mutual negotiations with appropriate linkage to price of Indian crude oil imports”. The panel may develop guidelines to “guide negotiations between buyers and sellers”.

Arguing against the competitive bidding process to determine gas prices, it said while the process requires standard terms for objective bidding, standard terms would not work due to varying requirements by customers. The bidding process would lead to cartelisation, prevent effective due diligence by buyers and standard global practice.

The process is dubbed as complicated, time-consuming, and would lead to market distortion. RIL said the mechanism of price determination is practical only for small volumes with known consumers.

The petroleum ministry has, however, maintained that “ideally, any price discovery should be the result of an open and transparent competitive bidding process that allows fair and equal opportunity to all gas consumers to participate in the price discovery. The same procedure has already been followed by companies, including RIL, in the Panna-Mukta and Tapti PSCs”.